On The Eve of a Greek Tragedy (part 2)

OnJun 16, 2012  4:05 PM

 

For Part 1 of ;    On The Eve of a Greek Tragedy, see:      http://www.geoblography.com/?p=1509

The Greek election! Wow! What an opportunity for the US to sell US Treasuries!

I can  still vividly imagine Timothy Geithner from a recent dream I had. He was dressed up as a monkey and working for an organ grinder who was working a carnival crowd saying; “Who’s in the market who’s willing to buy a boatload, or …say a supply …or a perhaps, a glut perchance?

 

Returning to reality, if the young Greek candidate, Alexis Tsipras’ appeal is strong enough inGreece(ala Syriza …the radical left wing Greek party) to get him elected, I have to wonder how the ECB’s printing press may likely affect the strength of the dollar …come Monday morning?

Pardon me for borrowing a line from a song from Fleetwood Mac …

“Monday morning sure looks fine. Friday, I’ve got traveling on my mind.”

These lyrics cause me to just dream of a time when my younger wanderer’s spirit was more active.

Oh! If, only I now had my own EURO printing press …I would strengthen the dollar, and oh …HOW I would roam again!!!

But, then again …if I were European; I would probably have to stay home and sell my cheap exports.

None the less (coming back to a more timely reality) if a weaker Euro’s net affect does actually result in produces a net stronger dollar, how then would that relative stronger dollar be likely positioned to impact and affect the price of commodities …let alone the stock markets over all?

Hint:   We have an opportunity to witness the answer on Monday …moving through any impact that the Greed election will have upon commodities and equity markets …visa vie, the relative strength and movement of currencies against the dollar.

Likewise, the currency  flows (through the mechanisms of arbitrage) may likely further exasperate a stronger dollar …and in turn, impact equities …that is, assuming that the relative flows and directions of currencies are divided and divert along finite ratios which have chosen to divide a focused destination by proportions of liquid favor (in a higher demand which should swamp out and favor price) winding up going into either an equity flavor …more or less relative to a bond flavor of the day.

None the less, if any additional flows actually are sent to and do find their way into theUS(from European systems) they will go into either equity markets or bond markets.

Therefore …the tale of the tail of Monday may very well be revealingly told by the TRADING VOLUME and in the numbers printed on Monday …as well as the VIX over the days (say …2-4) following this Sunday evening’s Greek election.

Regardless, if the dollar does not move appreciably, and the flow favors bonds/treasuries more so than equities; I would hate to think about the future redemption costs that the US of A will accrue if and when monetary policy must exercise a side of its mandate which supposedly is reserved for fighting inflation more so than provide growth and a stable economy.

The unspoken 800 pound gorilla in the room is the debt service costs which will rise in step with any rise in inflation.

Additionally, remember not all nations’ economic cycles are all equal.

By this, I mean to suggest that national economic cycles are not all in cyclical stride and in sync with one another …not even at or around the dates of regularly scheduled economic summits …or are they …or rather …can they be made to mark time together when needed?

Can you say plunge protection? What is that all about? Hush, and say no more.

Case in point; take the G-7’s recent action that it took earlier this year in response to the disaster inJapan. The first two days following the disaster, equity markets fell through the floor.

However, the G-7 quickly convened an emergency closed-door meeting and suddenly there followed sound as if a mighty rushing wind and a figure of order’s merit immediately affected an order which calmed the VIX along with other economic indicators whose net affect was to correct and lift markets so as to produce a resounding and vigorous multi-day rally.

Now, I know that the Greek election is not a disaster likeJapan’s disaster …yet, there was two unmistakable days of extreme anxiety which resulted in fallout of sorts which did actually negatively impact the equity markets.

So, regardless as to what transpires, it will …no doubt …be an interesting opportunity to observe how markets and central banks and finance ministers react to historic events like Monday promises to be.

Hang on Snoopy …hang on!

http://mediamatters.org/research/201205230007

 

P.S.:   As an after thought, consider the efforts to provide liquidity to banks worldwide …all in spite of recent conversations involving steps which have been taken to become prepared to withstand any speculation which may ensue the Greek Election.

In this regard, the question as to how much liquidity may be needed in any one country is a matter above my pay grade.

Never the less, the wolves assuredly stand before the three little pigs homes, equally prepared to Huff and puff …hoping to blow the door down.

By this I mean to consider how hedge fund traders may be likely to be licking their chops …standing equally prepared to make forays into option markets at the click of a mouse’s pigtail.

The amounts of …and sizes of these hedge funds’ position are …none the less are certain to bring to play an added market dynamic which …I hope all the central bankers are prepared to withstand.

All in all; remember the days following the Japanese earthquake and take comfort that the world economies are meeting to discuss its economic obligations and relative conditions of their rising levels of manageable indebtedness …all natural disasters and manmade tragedies not withstanding.

Now with respect to planning; I sure am glad that the G-20 summit will have at least a couple of days to discuss the issues beyond “…What’s for lunch and dinner.”

I’ll have the wild turkey salad and the roast duck thank you.

Foul seems appropriate in view of what is on this week’s agenda.

All the best,

 

Bill

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